I haven’t watched the video specifically, but having worked in local broadcasting for a decade there are basically two kinds of sports blackouts. The first one, perhaps most famously used by the NFL, is a blackout where the game will not be shown locally if the tickets to the event don’t sell out. While teams get a large amount of revenue from broadcast rights, national television rights get divided among the member teams and the league itself. A team’s most direct revenue comes from tickets sales, along with refreshments and merchandise sales at the game. Attendance is one of the key metrics for success or failure in all professional sports, at least in North America.

An interesting side effect, some teams in smaller markets won’t regularly sell out because their stadium is too large. The leagues often allow teams to block off entire seating sections to reduce the stadium’s capacity, often covered with a banner or something. However, so they don’t game the system by increasing the capacity when a popular opponent comes to visit, the teams have to keep those restrictions in place over the course of the season, although they can remove them for non-league events such as concerts.

The other kind of blackout, which it sounds like this guy is referring to, impacts when the league offers a subscription service nationally but the individual teams have local broadcast contracts. This predates Internet streaming, but the concept has stayed the same. Often TV rights are sold locally to broadcast stations or regional sports networks (RSNs). Especially when these are paid channels, they don’t want to be competing against themselves and fracturing their viewership. In the Internet era, it might be cheaper to just subscribe to the league’s streaming service instead of having to get a cable or satellite subscription at a tier that includes the channel. Since the broadcasters probably paid a lot for those broadcast rights, they don’t want the league then offering a different, cheaper option.

Incidentally, this might be in the process of changing. The RSNs are dying, particularly Diamond Sports Group. When Disney bought Fox, because Disney already owned ESPN they were forced to sell off the regional networks. These were bought by a venture headed by Sinclair Broadcasting, becoming Diamond Sports Group. They paid almost $10 Billion for these networks, financed almost entirely with debt. The plan was to raise the fees TV operators paid for the channels, but the demand hasn’t actually been there so most just dropped them, except for local cable monopolies and DIRECTV. Diamond has been in bankruptcy for years, failed to make contracted payments to local teams, and has lost a number of contracts. Several regions have shut down entirely and if they don’t emerge from bankruptcy this year it might go out of business entirely.

As for how is it legal? No one’s forcing the teams to put their games on TV. They can decide how they want to do it in the most profitable manner.